Policing Cost, Evasion Cost, and the Optimal Speed Limit

Abstract

What is the best speed limit for the nation's highways? Obviously this is a difficult, if not impossible, question to answer, depending as it does on such hard to assess considerations as the magnitude of accident externalities, the value of human life, and the opportunity cost of time spent on the highway. Recent work, however, has added to the empirical and analytical knowledge needed to evaluate the appropriateness of particular speed limits. Prompted by the nation-wide imposition of the 55 MPH highway speed limit in 1973,' most economic analysis of highway speeds has focused on the question of whether or not this lowering of the speed limit was economically justified. Evaluating the benefits and costs of the 55 MPH speed limit under a range of reasonable estimates on the value of human life and driving time, most of the studies conclude that the reduction in the speed limit cannot be justified. For example, Castle [2]; Lave [6]; Jondrow, Bowes, and Levy [5]2; and Forester, McNown, and Singell [4] conclude on the basis of their investigations that the costs of reducing the speed limit to 55 MPH have been greater than the benefits.3 The purpose of this paper is not to bring new empirical evidence to bear on the question of the appropriateness or inappropriateness of the 55 MPH limit. Instead, the objective is to extend the analytical framework within which to evaluate speed limits. This will be done by incorporating an obviously important, but largely unexamined, consideration into an analysis of the optimal speed limit. It will be recognized explicitly that if the legal speed limit is less than that which is considered by some to be privately optimal (if this is not the case there is no need for a legal speed limit), then the effectiveness of the speed limit will depend on the level of socially costly policing.4